Extensive tax incentives for clean industry to drive green investment shift

The government has unveiled a "Going Green" fiscal strategy in the new budget, positioning environmental sustainability at the core of its investment and industrial policy, while significantly incentivising clean energy, electric mobility and green manufacturing.

In his budget speech, the finance minister said taxation policy will no longer serve only as a revenue collection tool, but also as a mechanism to ensure food security, energy security and environmental protection. "Our tax system must support sustainable development and a green transition," he said.

A key feature of the budget is long-term tax certainty for green industries. Nearly all major duty exemptions for semiconductors, batteries, computers, consumer electronics, EV components and electric buses will remain valid until 2030-31, offering investors a stable planning horizon.

Renewable energy has emerged as one of the biggest beneficiaries. Import duties and taxes on solar inverters, lithium-ion batteries, solar PV modules, and mounting structures are set to be reduced or fully waived.

In addition, solar power generation will remain tax-free until 2035, while consumers using solar electricity will receive a 5% tax rebate. Policymakers say this combination of incentives is designed to accelerate rooftop solar adoption and utility-scale renewable expansion.

EV ecosystem expansion

The electric vehicle (EV) sector has received one of the most comprehensive incentive packages. Tax concessions will apply to EV manufacturing, battery production, charging infrastructure, and electric buses and trucks.

Advance income tax on EV registration will be significantly reduced, while import duties on EV chargers and charging stations will be brought down from 39.75% to zero, aiming to rapidly expand nationwide charging infrastructure.

The total tax burden on imported electric cars priced up to $25,000 will fall from 93% to 64%. At the same time, the government will raise taxes on petrol and diesel vehicles with engine capacities between 1,200cc and 1,600cc from 132% to 156%, discouraging fossil fuel dependence.

The budget also provides strong support for local EV manufacturing. Companies engaged in welding, assembly, painting and body manufacturing for electric vehicles will receive extensive tax exemptions, with only a 3% import duty retained on inputs.

Lithium-ion and sodium-ion battery production has been prioritised, with full tax exemptions on raw material imports until June 2030. 

Electric bike manufacturers and their component suppliers will receive expanded incentives to build a local value chain for micro-mobility solutions.

Environmental policy and green jobs

Alongside industrial incentives, the government has announced a long-term environmental action plan, including a target of planting 25 crore trees over the next five years, expected to generate around 3,50,000 green jobs.

Air quality monitoring will be strengthened through expanded Continuous Air Monitoring Stations and Compact Continuous Air Monitoring Stations  networks, while 10 modern vehicle inspection centres will be set up under the BRTA.

A nationwide e-waste management guideline is also being prepared, alongside a target to reduce plastic waste by 30% under the 3R (Reduce, Reuse, Recycle) framework within five years.

To accelerate the shift toward cleaner mobility, the government will raise taxes on fossil fuel-based vehicles while offering preferential treatment to EVs and hybrids. Plug-in hybrid electric vehicles (PHEVs) will also receive reduced duties depending on engine capacity, while regulatory duties on smaller hybrid vehicles will be withdrawn.

At the same time, EV buses for educational institutions and public transport systems will continue to enjoy full tax exemptions until 2030.